Regulation of last resort: A presentation on ‘Thanks but no thanks: A new policy to reduct land conflict’ by Dufwenberg, Kohlin, Martinsson, and Medhin (2016)

Nicholas A Potter

October 07, 2017

Introduction

  • Lack of well-defined property rights of land is an oft-cited reason for lackluster growth in Africa.

  • Transition to well-defined land rights can be both costly and can induce conflict.

  • Dufwenberg and colleagues (Dufwenberg et al. (2016)) examine whether a ‘credible threat’ of government resolution reduces incedences of land conflict.

Hypothesis

A costly option to enforce equal division and social preferences can turn a dilemma game into a coordination game.

Theory

  • Two players choose simultaneously.
  • Each player’s strategy set is \(\{0, 1, \cdots, T\}\), where \(T\) is the total amount of land available to allocate.
  • If players contest land, the value of the land is decreased, such that

\[U(x_i, z) = v(x_i - z) + v \frac{z}{4}\\ z(x_i, x_{-i}) = \max \{x_i + x_{-i} - T, 0\}.\]

Here \(T = 4\) and \(v = 8\).

Normal form under selfish preferences

0 1 2 3 4
0 0, 0 0, 8 0, 16 0, 24 0, 32
1 8, 0 8, 8 8, 16 8, 24 2, 26
2 16, 0 16, 8 16, 16 10, 18 4, 20
3 24, 0 24, 8 18, 10 12, 12 6, 14
4 32, 0 26, 2 20, 4 14, 6 8, 8

Normal form under maximin preferences

0 1 2 3 4
0 0, 0 0, 0 0, 0 0, 0 0, 0
1 0, 0 8, 8 8, 8 8, 8 2, 2
2 0, 0 8, 8 16, 16 10, 10 4, 4
3 0, 0 8, 8 10, 10 12, 12 6, 6
4 0, 0 2, 2 4, 4 6, 6 8, 8

Policy

Either player may choose a new option \(D\): invoke the divider. The divider charges a fee \(t = 10\) that is shared between the players and allocates the land equally between the two. If neither player chooses \(D\), then they play the original game.

Policy game

Policy with maximin

D 0 1 2 3 4
D 11, 11 11, 11 11, 11 11, 11 11, 11 11, 11
0 11, 11 0, 0 0, 0 0, 0 0, 0 0, 0
1 11, 11 0, 0 8, 8 8, 8 8, 8 2, 2
2 11, 11 0, 0 8, 8 16, 16 10, 10 4, 4
3 11, 11 0, 0 8, 8 10, 10 12, 12 6, 6
4 11, 11 0, 0 2, 2 4, 4 6, 6 8, 8

Policy with maximin

D 2 3
D 11, 11 11, 11 11, 11
2 11, 11 16, 16 10, 10
3 11, 11 10, 10 12, 12

Policy with maximin

2 3
2 16, 16 10, 10
3 10, 10 12, 12

Experiment

Compare behavior in games with and without the divider option, allowing participants to choose how much land they want to claim.

  • 8 villages in the Amhara region of Ethiopia.
  • land unit is a tilm. One hectare is equal to 30-40 tilms.
  • randomly and anonymously matched in pairs.
  • 2 sessions of 15 anonymous pairs for each of 2 treaments in 8 villages, 480 subjects total.

Experiment

Testable Hypotheses

H1: Since 0 and 1 are weakly dominated, few subjects will choose those options in either treatment.

H2: The Divider option will induce subjects to choose other actions that to play 4.

H3: D is weakly dominated in the Divider treatment so few subjects will choose it.

H4: 2 and 3 are more prevalent in the Divider treatment than the no-Divider treatment.

H5: 2 is more frequently chosen than 3 in the Divider treatment.

H6: If players believe the other player will choose 2, 3, or 4, they are more likely to choose that same action.

Results

High conflict\(^a\) High conflict\(^b\) No/Low Conflict\(^c\) No conflict\(^d\) No conflict\(^e\)
Divider Tx \(-0.496^{***}\) \(-0.309^{**}\) 0.173 \(0.300^{**}\) \(0.315^{*}\)
N \(477\) \(319\) \(404\) \(404\) \(280\)
Related H H2 H2/H4 H4 H4/H5 H5

\(^a\) 1 if claim is 4, 0 otherwise.

\(^b\) 1 if claim is 4, 0 if claim is 2.

\(^c\) 1 if claim is 2 or 3, 0 otherwise; D are excluded.

\(^d\) 1 if claim is 2, 0 otherwise; D are excluded.

\(^e\) 1 if claim is 2, 0 if claim is 3.

Conclusions

  • The credible threat of the Divider induces more cooperation, therefore offering detailed mapping and resolution at some cost may encourage negotiation instead, which is much less costly.

Social Preference Literature

  • Interdependent preferences and reciprocity (Sobel 2005).
  • Fairness and retaliation: the economics of reciprocity (Ernst Fehr and Gächter 2000).
  • The economics of fairness, reciprocity and altruism-experimental evidence and new theories (Ernst Fehr and Schmidt 2006).
  • A theory of fairness, competition, and cooperation (E. Fehr and Schmidt 1999).
  • Understanding social preferences with simple tests (Charness and Rabin 2002).
  • ERC: A theory of equity, reciprocity, and competition (Bolton and Ockenfels 2000).

References

Bolton, Gary E, and Axel Ockenfels. 2000. “ERC: A Theory of Equity, Reciprocity, and Competition.” American Economic Review. JSTOR, 166–93.

Charness, G., and M. Rabin. 2002. “Understanding Social Preferences with Simple Tests.” The Quarterly Journal of Economics 117 (3). Oxford University Press (OUP): 817–69. doi:10.1162/003355302760193904.

Dufwenberg, Martin, Gunnar Köhlin, Peter Martinsson, and Haileselassie Medhin. 2016. “Thanks but No Thanks: A New Policy to Reduce Land Conflict.” Journal of Environmental Economics and Management 77. Elsevier BV: 31–50. doi:10.1016/j.jeem.2015.12.005.

Fehr, E., and K. M. Schmidt. 1999. “A Theory of Fairness, Competition, and Cooperation.” The Quarterly Journal of Economics 114 (3). Oxford University Press (OUP): 817–68. doi:10.1162/003355399556151.

Fehr, Ernst, and Simon Gächter. 2000. “Fairness and Retaliation: The Economics of Reciprocity.” The Journal of Economic Perspectives 14 (3). JSTOR: 159–81.

Fehr, Ernst, and Klaus M. Schmidt. 2006. “Chapter 8 the Economics of Fairness, Reciprocity and Altruism – Experimental Evidence and New Theories.” Handbook of the Economics of Giving, Altruism and Reciprocity. Elsevier, 615–91. doi:10.1016/s1574-0714(06)01008-6.

Sobel, Joel. 2005. “Interdependent Preferences and Reciprocity.” Journal of Economic Literature 43 (2). American Economic Association: 392–436.